The Worst Super Bowl Ad was about Mortgages

 

With all due respect to the Denver Broncos (defense) for winning Super Bowl 50, the game was a bust.  And with all do respect to Coldplay, Bey stole and crushed the half-time show (while also subverting it) saving it from being a bust.  The third part of this increasingly perfunctory corporate ritual, the commercials, was also largely "meh."

However, one commercial received a scathing outburst from all of us watching and has already gotten a lot of ink from the NY Times and Slate among others (making me wish I could have turned this post around faster) - the commercial for Rocket Mortgage's new app (see above video).

The commercial makes a bold claim about doing for mortgages what the internet did for buying music, plane tickets, or shoes.  Now, to be fair, I've never gotten a mortgage, so I don't know this, but I'm pretty sure that it's not like buying shoes online.  Or, it shouldn't be at any rate.  Though I think their point is to simplify the paperwork after the fact, the commercial makes it seem like any Joe six pack can one-click purchase a home like they are lining up an Uber X to take them to said new home. 

At best this commercial's value proposition was lazy, tone-deaf, and misleading, but at worst it was dangerous.  Most commentators have rightfully pointed out how ahistorical this ad is given that we are only a few years removed from the 2008 financial crash that was sparked by lax or predatory mortgage practices.  They also pose a somewhat troll-y question:  does the appearance of this ad sound a warning about a new mortgage crisis?

There are some reasons to be concerned.  Despite the fact that new home construction has increased 14% from 2014 nationally, and home values have nearly returned to the pre-crisis levels,  these numbers don't speak to the fact that a significant portion of these homes in certain markets are being bought by institutional investors or speculators either renting them or sitting on them as their values increase. 

The other big concern is that the 2008 mortgage crisis was never actually solved.  The Troubled Asset Relief Program (TARP) passed in 2008 by President Bush was the big bad bank bailout that propped up the financial sector with billions of dollars in short-term loans and did largely achieve its basic goal of saving the banking system. It also spawned efforts by the Treasury and President Obama to help troubled homeowners through the Home Affordable Modification Program (HAMP) which allowed some qualified homeowners to renegotiate interest rates to more manageable levels. But these programs were band-aids and didn't solve many minor issues let alone the larger issues in our economy.

Particularly with HAMP,  it was only intended to be a short-term fix that created time to let the market get back to normal.  To many housing advocates, the original sin of HAMP was not reducing the principal amount of loans in the first place, which many argued for and continue to.  Without acknowledging that most homes were wrongly priced from the start, the argument goes, giving a reduction in interest rates doesn't change the equation for homeowners that much. 

Instead, these and other short-term fixes were based on the assumption that the economy would recover to pre-crisis levels, incomes would rise to cover the cost increases over time, and homeownership rates would continue to rise along the historical trend. 

However, the economy has not done what it was supposed to do. Though it has improved across many indicators, incomes are still not rising while many of the lowered interest rates achieved for homeowners through HAMP are set to increase over the next few years. This could cause an increase in foreclosures, particularly in low-income and minority majority neighborhoods. 

As I mentioned in a previous post millennials (the largest demographic of potential first home buyers) also aren't buying homes at the rates of previous generations - because they can't afford them in the markets where most of them live and work, or they have too much debt to save for a down payment, or they don't want to for various lifestyle reasons. Whatever the reason, if they don't end up buying homes as much as their predecessors, the amount of home construction (which is heavily concentrated in areas that don't appear to have the job growth numbers to support them) could create turmoil over the next few years as demand doesn't match the supply.

Which brings us back to Rocket Mortgage (owned by Quicken Loans, which has its own history with the mortgage crisis).  The second half of their commercial illustrates the magical thinking currently prevalent in housing policy and the market.  When you buy a home, as the commercial goes, you need to buy things to fill it.  When you buy those things, the people making them can buy a home too.  A virtuous cycle.

Well, sure, but a lot of Americans still can't afford to buy a home.  Others with homes already are still underwater.  And institutional investors don't really buy a lot of handcrafted furniture as far as I know. Solving those problems (well, not the hand-crafted furniture problem) will certainly go a long way to fixing the power of America, but having an app to buy a mortgage won't.  

Just as importantly, we need to stop the misguided policies and market solutions distorting the housing market that got us into the financial crisis in the first place. Homeownership shouldn't be pursued as a public policy goal anymore than renting should be because it inevitably leads to dubious market solutions that can trick people into a home they really can't afford or cause them to lose a home they've had for years. 

There are many virtues of owning a home and many reasons why high ownership is a net public benefit in this country. But we have designed a financial system that treats them as ATM machines and wealth creators which undermine those virtues and commodifies homes and communities.  Create the type of economic opportunity that allows people to buy a house if they choose and go from there.  Our current thinking needs to stop or we'll be stuck with far worse than crappy Super Bowl commercials every few years.